“External growth in business is all about how to grow your company outside of its current boundaries. Many different methods can accomplish external growth, but the most common is through mergers and acquisitions, joint ventures, partnerships, licensing agreements or franchising.”
Many companies are interested in external growth, but what is it? External growth can be defined as the expansion of a company by means other than internal development. External growth strategies are different from one another and have advantages and disadvantages. External growth means acquiring other businesses and includes any process that changes an organization’s size or scope. There are five external-growth strategies: mergers and acquisitions, joint ventures, partnerships, franchises, and licensing agreements.
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What Really Is External growth?
It’s a common business term that is thrown around regularly without much explanation. In the most basic sense, external growth is a business term that means expanding into new markets outside of your normal operations to increase revenue and expand your market share. Businesses have been leveraging this practice for many years with great success. They stay competitive in their respective industries because it allows them to take advantage of opportunities as they present themselves.
In addition, External Growth can be defined as an increase in sales coming from outside of the company. This term typically applies to retailers or service providers who get their revenue by selling products and services rather than through other means like interest, dividends, royalties, rent etc.
To achieve an external deal with customers, you need first to identify the problem or opportunity that needs addressing then create solutions around it. The key here is not just providing potential buyers access to information but, better yet, providing insights on how each solution addresses specific problems so users can make informed decisions based on data rather than assumptions.
There are numerous successful examples Of external growth include Amazon moving beyond its online bookselling roots by opening physical stores under its brand name or other retailers turning their brick-and-mortar locations into showrooms for online orders.
External growth can be defined as an increase in sales coming from outside of the company. This term typically applies to retailers or service providers who get their revenue by selling products and services rather than through other means like interest, dividends, royalties, rent etc.
Advantages Of External growth in business
External growth is when a company expands its market by looking for new opportunities in other countries. It does not require large investments and allows the company to avoid potential risks of internal developments. In this way, companies can try out different strategies without losing control over their existing markets. External growth often brings higher profits than domestic ones because of greater efficiency and better cost management. Another advantage is that it involves less time spent on research and development than an internal one, giving companies more time to focus on improving products or services they already have in the market.
As there are so many advantages from external growth, we should not be surprised why businesses worldwide do this strategy frequently even if sometimes they have to face some difficulties. External growth is a very effective way of expanding the market without making too much investment from the company and allowing more time for the development of products or services which customers can use in their everyday life.
As we see, every business tries to expand its customer base through this strategy as it allows them to gain a wider range of profits by improving existing products instead of inventing new ones all the time. External expansion saves money and precious efforts that could be used somewhere else for other purposes, such as developing already known items people are using nowadays. In this way, companies work smarter with less loss than those who do nothing at all, even if they have great ideas about future developments because implementation would require lots of effort.
There is a possibility that risks can lead to loss of control over the whole market. External expansion is one interesting way for companies to gain more profit from doing nothing. However, it requires much effort and knowledge from managers who take all decisions about this strategy to make it profitable for their company which might result in great success or failure depending on how well they managed everything.
Disadvantages Of External Growth
The Disadvantages of external business growth are:
- The company can become too focused on things outside its core business.
- If the market changes, it may be hard to adapt and grow quickly enough.
- There is a risk that you will not receive as much revenue from your new products or services if they do not meet customer expectations.
- You may have less control over how employees work since part of the team will come from another organization.
This has been an introduction to some disadvantages of externally growing and expanding businesses and companies through purchasing other companies, for example, rather than just organically creating more clients and customers through doing good business strategies such as marketing campaigns! Stay tuned to learn more about the Disadvantages of external growth in business.
There are many disadvantages to growing your company externally. One disadvantage is that it’ll grow too fast.
- External growth makes it hard to control costs.
- Your team might not be ready for expansion in certain areas.
- You lose quality when you outsource work. These disadvantages make it important for companies to expand… – They need a tight strategy and plenty of planning before expanding into new markets or adding more employees.
- They also need to ensure they have the right systems in place, like strong project management and communication skills. Furthermore, companies looking for growth should be careful about how much of their business is outsourced. This can create a bottleneck if there’s not enough workforce or expertise available internally (at least at first).
- External growth adds significant risk and complexity to a business process that already has its own set of risks and complexities.
- Added external pressures can create conflict between external stakeholders with their different agendas.
- External ventures require substantial investment in time and resources from people who may not have been involved with them before or be familiar enough with the project’s goals.
- In trying markets where customers don’t want what you’re selling, it can take an even larger amount of effort to keep your head above water *In general* companies should avoid making support available on consumer products since they generated no revenue from those activities. This means external growth is a gamble with no “sure thing” to rely on.
INTERNAL GROWTH VS EXTERNAL GROWTH.
Internal and external growths are two types of business expansion that many companies do to grow their company. Internal or organic growth is how a company grows its business mainly through internal forces like initiatives, ideas, etc. On the other hand, External Growth refers to any business expansion outside the current organization structure, including acquisition, merger & taking over another firm.
“Internal factors drive most businesses.” These factors include the management team’s experience in particular areas they can help grow faster than others. Experienced employees who know how to increase sales with better production capabilities; training programs for existing staff members on new products or services offered by the company so that each person has an idea of what would be expected from them if needed, and many more. Internal growth is a cost-effective way to grow the business without any risks involved, unlike external growth, where there are always risk factors that can take place, such as needing financing, expansion failures and other issues that may arise during mergers or acquisitions.
“External Growth: Company buys another company.” Internal and External growth hold equal importance in every organization’s strategy for growing their business because if internal forces fail, then they should have some backup plan ready to use, which would be having an idea about what kind of merger or acquisition could help them increase sales & revenue quicker than before (external) and also at the same time avoid certain risks like not getting enough funds from different sources. This approach helps companies adopt both types of growth successfully to expand their business.
Internal growth is the sort of gradual, organic improvement that most companies experience over time. Internal growth comes from improving or updating your product to remain competitive in its marketplace. Internal growth can also come by increasing production efficiency and quality control with an existing process. An example of internal growth would be constructing a new building on your property to expand current operations within one entity.
Along the same lines as internal growth, external refers to taking what you have learned internally and applying it externally through acquisitions or mergers with other businesses outside your core business’s functional area(s). External growth often requires large sums of money, which will require good stewardship if not managed correctly. It can lead organizations into debt traps after they are completed. One recent example of external growth was the merger between Time Warner Cable and Comcast.
Internal and external business growth both contribute to the overall success of your corporation; however, internal businesses focus on strengthening what you already have while external businesses look for outside strategies like promotional deals with other corporations to improve revenue.
Strategies Of External growth
A business can be born from a great idea, but it will not last if the company doesn’t have the resources they need. External growth is when businesses grow through acquisitions or mergers with other companies, which gives them access to new customers and revenue opportunities. External growth strategies are important for all types of organizations – whether you’re looking at an established multi-billion dollar corporation like Apple Inc. or a smaller organization that needs some assistance getting off the ground. In this blog post, I’ll go over five different external growth strategies and what makes each one suitable, depending on your situation.
Greenfield expansion
The first strategy of external growth is referred to as greenfield expansion. This happens when there’s room in another market where you don’t currently have a presence and you’re ready to invest in creating a new product or service from the ground up. For example, Apple has been rapidly growing through greenfield expansion by entering the music streaming industry with their streaming platform called Apple Music. They’ve partnered with artists like Drake and Frank Ocean for exclusive releases, as well as major record labels Universal Music Group (UMG), Sony Music Entertainment (SME), Warner Music Group (WMG), et cetera – helping them secure hundreds of millions of paid subscribers across both iOS devices and Android platforms.
Market penetration
The next strategy is sometimes referred to as market penetration. This happens when your business decides that they want more exposure among existing customers who already use your services on some level. For example, let’s say your company is a mobile app developer and you’ve launched an iOS version of your service – but not the Android version yet. In this case, you might consider starting with market penetration by developing the Android platform first before moving on to other platforms like Windows Phone or Blackberry.
Product development
The third strategy for external growth is called product development. It happens when specific products in new markets need improvement to deliver more value to customers. This could be something as simple as refining the design of existing items, so they’re easier/more convenient to use (iPad) or reinventing certain categories altogether (iPhone). The key here is that whatever direction you go in will have its unique challenges depending on the market you’re entering – so it’s important to consider how well suited your business is for this strategy.
Product diversification
The fourth strategy of external growth, which I like to call product diversification, happens when different products in existing markets can be complemented with additional items (iPod + iTunes). External growth via product development and diversification has been instrumental in Apple becoming one of the most powerful companies on Earth today; however, Tim Cook made a point during their last conference call (Q12016) that they won’t rest until they’ve figured out what comes next after mobile devices…which leads me into my final strategy platform expansion.
This happens when existing platforms need new features or capabilities added to them. The obvious examples here are adding new apps to the iOS App Store or making enhancements available through macOS. A good way to think about this strategy is to consider everything you can do with your existing product/platform before worrying too much about what comes next.
Final Words
It’s clear that the process of external growth is complex and nuanced, but if you’re looking to grow your company in a way that capitalizes on new opportunities, it may be worth exploring. Have you tried any of these strategies?
